With figures out this morning showing an unexpected contraction in UK GDP of 0.3% in August, the Business Secretary, Jacob Rees-Mogg has reiterated how the figures justify the government’s recent mini budget and denied it has been responsible for recent volatility on the financial markets.
The pound has fallen by nearly 10% against the dollar since the Chancellor’s financial statement last month, with the Bank of England driven into buying bonds to support the pension market.
Speaking on the BBC Radio 4 ‘Today programme’ this morning, Mr Rees-Mogg said, “What has the caused the effect in pension funds, is because of some quite high risk but low probability investment strategies. It is not necessarily the budget. It could just as easily be the fact that the day before, the Bank of England did not raise interest rates as much as the Federal Reserve did”.
Speaking of the volatility in the foreign exchange markets, Mr Rees-Mogg again strove to play down any causality with the government’s recent financial statement in which it plans to cut taxes, paid for in the short term by an increase in borrowing.
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Suggesting that the increase in borrowing was “not enormous” as a proportion of GDP, Mr Rees-Mogg said of pressures in financial markets, “The interest rate differential between the US and the UK has widened. It is much more to do with interest rates than it is to do with a minor part of fiscal policy”.
Unexpectedly, GDP fell this morning, raising concerns that the UK may be heading for recession sooner than expected.
GDP had previously grown by 0.1% in July, but in announcing today’s figures the Office of National Statistics pointed to the struggles of many services businesses such as hotels, hospitality and retail in the summer.
Reacting to the fall in GDP, the Business Secretary, Mr Rees-Mogg argued the decline justified the urgency of the government’s mini budget saying, “The issue facing the government is can we get growth because growth is what pays the bills both for the government and consumers”.
This morning, business groups expressed concern about the decline in economic output.
Ben Jones, the lead economist at the business group, the Confederation of British Industry, said, “Rising interest rates are adding further to costs facing businesses and households. In the run-up to the medium-term fiscal plan, business will be looking for reassurance that policy measures will be delivered against the backdrop of a stable macroeconomic environment.”
Consumer confidence is seen as being very uncertain at the moment. It remains to be seen if the slowing of the economy will have an impact on the Bank of England’s decision to raise interest rates to slow inflation.
